Crypto Bubbles: Why Traders Believe Altcoins Are Overpriced

While certain mainstream observers simply regard the entire cryptocurrency market as one giant balloon, other individuals have been offering more nuanced claims recently, assertions that revolve around a distinction between Bitcoin and the vast majority of altcoins.

ShapeShift CEO Erik Voorhees argued last year that Bitcoin and altcoins form two separate markets, while on July 1, crypto-Twitter personality Lil Bubble published a parody music video that perfectly encapsulated the current plight of altcoins, which have been slightly flagging behind Bitcoin as it increases its market dominance to 62.2%. But even if it is true that Bitcoin's price has increased by around 128% over the last three months, there's no real indication or evidence that the majority of altcoins will tumble to virtually nothing while the original cryptocurrency remains strong.

While other crypto traders would concur that Bitcoin is likely to increase its market dominance in the coming months, they wouldn't go so far as agreeing that altcoins are going to be wiped out.

This is the position taken by Josh Rager, a trader who told Cointelegraph that, even with Bitcoin's current rise, there will remain other cryptocurrencies that perform well as a result of offering value propositions not covered by BTC:. "The Bitcoin dominance of the total market share is at 65% and as long as this continues to move up than the rest of the market will likely stay stagnant with price. As we see BTC dominance drop, we'll know that the rest of the cryptocurrency market will likely start to benefit with funds shifting towards altcoins with strong fundamentals. Not to mention a lot of other crypto assets with solid tech coming to the market starting in late 2019.".

"Bitcoin is probably the most rational crypto asset to assign a high price to, because it currently has the highest likelihood of future mass-adoption. Some other cryptos are highly valued because their technological innovations show great promise, and that's perfectly valid, but technology is worthless if no one actually uses it, so all cryptos prices are based on the assumption that one day people will adopt the tech or use the product. Bitcoin is the only one most people have heard of, so it has a big head-start, but that doesn't mean the others are all doomed by any means."

In other words, there appears to be a loose consensus among traders that Bitcoin is separating itself from the altcoin market, and that altcoins in general may be overpriced.

Speaking of generalizations, it's worth considering the question of whether the cryptocurrency market as a whole, including Bitcoin, is overpriced and currently passing through a bubble period.

Well, as with the previous question, there is a consensus among traders that there is probably some overpricing going on, although this doesn't necessarily imply a Bitcoin or crypto bubble is taking place, as it looks as though the market is moving on the basis of a genuine belief in future adoption and growth.

"The market is still driven by speculation because it's difficult to assign fundamental value to cryptos. They don't have profits and revenues like stocks do, so it's very hard to decide how much they're truly worth. But crucially, that does NOT mean they're worth nothing. They are priced according to traders' personal assessments of their future prospects. Amazon didn't make profits for many years, but its share price kept rising anyway, because people expected great things in the future. Likewise, if many people rationally believe Bitcoin will achieve mass-adoption, then a high price is not unjustified."

"The psychology of 5-digit Bitcoin over $10,000 has already set in as we saw sub-$10k prices were quickly bought up over this past week. Bitcoin and crypto miners seem to be holding on to more Bitcoin because they're profitable once again so there is a lack of selling pressure from miners overall. Not to mention all the new instruments for Bitcoin and the crypto market including BAKKT and institutions getting into the market more. And even LedgerX was recently approved to offer physically settled Bitcoin Futures to retail investors."